Buy This Southeast Asian Airline Stock Now

Shares of Thai Airways International (THAI.TH) have slumped 11% this year as Thailand's year-long period of mourning and the clamp down on selling cheap tour packages to tourists from China (so-called 'zero-dollar tours') weighed on the carrier’s earnings outlook.

While Thai Airways is expected to suffer a loss in the second and third quarters of this year, Nomura analyst Ahmad Maghfur Usman expects earnings to markedly rebound from the fourth quarter onwards. Ahmad forecasts 40% earnings growth for next year as inbound arrivals improve. The analyst has upgraded Thai Airways from neutral to buy. His target price of THB23.72 a share implies 17% upside.

More importantly, as Usman notes, Thai Airways is a strong restructuring and privatization candidate.

The proposed mega-state holding of Thailand SOEs could be a key catalyst for radical positive change in Thai Airways, paving the way for a potential privatization. The proposal of setting up a National State Enterprise Corporation could bring radical positive change for the better for Thai Airways, once legislation goes through (no official timeline on this). This initiative, under the purview of the State Enterprise Policy Office, and mooted two years ago, has been long delayed. Should this materialise, we believe it would bring positive change in terms of flexibility and reform cost efficiencies and structure to Thai SOEs. We also do not rule out that Thai Airways is one potential candidate for privatization prior to a full-scale restructuring implementation, as was the case with Malaysia Airlines.

Thai Airways shares trade at 12 times 2018 earnings, below a peer average of 14 times, and could turn free cash flow positive next year after it pays off its debt.

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